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ECB's Draghi reaffirms pledge to save euro
Markets underwhelmed by European Central Bank chief's promise to do "whatever it takes" to preserve single currency.
Last Modified: 02 Aug 2012 21:37

Mario Draghi, the head of the European Central Bank (ECB), has reaffirmed his pledge to "do whatever it takes" to save the single currency.

Draghi said economic growth in the eurozone remained weak and was affecting confidence in the fiscal bloc.

His remarks were made during a news conference on Thursday, held after the bank's monthly meeting at which the main eurozone interest rate was kept at a record low of 0.75 per cent.

But markets were disappointed that the policy meeting did not result immediately in concrete crisis fighting measures.

The ECB will also gear up to buy Italian and Spanish bonds on the open market but would only act after eurozone governments have activated bailout funds to do the same, Draghi said.

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Draghi indicated that any ECB intervention would start at the earliest in September and would depend on countries in
trouble on bond markets making a request and accepting strict conditions and supervision.

He also indicated that Jens Weidmann, the German central bank chief, had expressed reservations about bond-buying and further efforts would be needed to persuade the Bundesbank before a final vote to take action.

Draghi also said the bank would consider other "non-standard" measures to rein in the eurozone crisis.

"The Governing Council, within its mandate to maintain price stability over the medium term, and in observance of its
independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective," Draghi said.

The bank has already spent $259bn buying bonds under its now dormant Securities Markets Programme since May 2010, with limited impact, but Draghi said the new effort would be different in scope and conditionality.

Any new ECB action was conditional on eurozone governments using their EFSF (European Financial Stability Facility) and ESM (European Stability Mechanism) bailout funds first, he said.

"Governments must stand ready to activate the ESM/EFSF in the bond market when exceptional financial market circumstances and risks to financial stability exist," he said.

'Quite disappointing'

Financial markets seemed underwhelmed by the announcements, with some investors having interpreted Draghi's comments last week as a sign of imminent, rather than future and conditional, action.

Draghi was under intense pressure from investors, to deliver on his pledge to 'do whatever it takes'

"It is quite disappointing ... There is a lack of any action so he has basically passed the buck back on to politicians,"
said Ioan Smith, a strategist at Knight Capital.

German bund futures extended gains, a sign of investors seeking safety, and the euro fell by more than one cent to below $1.22 at 13:30 GMT on Thursday.

Draghi was under intense pressure from investors, European leaders and even the US to deliver on his pledge to do whatever it takes to save the euro by bringing high borrowing costs down and solving the debt crisis.

His comments in London last Thursday that the ECB would do whatever it takes within its mandate to protect the currency bloc from collapse - "and believe me, it will be enough" - had already eased tensions on the debt markets.

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Source:
Agencies
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